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Federal court dismisses petition to vacate arbitration award for lack of subject matter jurisdiction, but recognizes viability of manifest disregard of the law

Plaintiff Newton & Associates, L.L.C. ("Newton") petitioned the U.S. District Court for the Eastern District of Louisiana pursuant to Section 10 of the Federal Arbitration Act ("FAA") to vacate an arbitration award in favor of defendant Sandra R. Sanchez ("Sanchez"). SeeNewton & Associates, L.L.C. v. Sanchez, No. 08-4558 (Dec. 22, 2008). Newton also claimed that the arbitration award was rendered in manifest disregard of the law. Sanchez moved to dismiss the action under Rule 12(b)(1) of the Federal Rules of Civil Procedure, arguing that the court lacked subject matter jurisdiction because the parties were not diverse, and that there was no other independent basis for federal jurisdiction.

The court began its analysis by noting that although the FAA creates a body of federal substantive law regulating the enforcement of arbitration agreements and awards, it does not confer subject matter jurisdiction upon federal district courts. Thus, in order for a federal district court to entertain petitions to confirm or vacate an arbitration award arising under the FAA, there must be an independent basis for federal jurisdiction. Because the parties to the action were not diverse and there was no other basis for subject matter jurisdiction, the court granted the defendant's motion to dismiss.

The court further noted, without any analysis, that the non-statutory ground for vacatur or modification of an arbitration award, known as manifest disregard of the law, may provide a federal court with subject matter jurisdiction under limited circumstances. The court recognized the validity of the doctrine of manifest disregard of the law, but found that the arbitrator's award was not in breach of it. Since the U.S. Supreme Court's decision in Hall Street v. Mattel, which has been closely followed on this blog the past year, federal courts have differed as to whether manifest disregard of the law remains a valid basis for vacatur or modification of arbitration awards arising under the FAA.

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